Answer:
1. Carrying amount = $250,000
2. Cash paid to retire bond = $225,000
3. Gain on the retirement = $25,000
Explanation:
1. What is Plummer Company's carrying amount of the bonds payable on the retirement date?
Carrying amount of a bond payable on the retirement date is its par value amount.
Therefore, Plummer Company's carrying amount of the bonds payable on the retirement date is $100 par value for 2,500 units with a total carrying amount of $250,000.
2. How much cash must Plummer Company pay to retire the bondspayable?
Units of bond = $250,000/$100 = 2,500 units.
Since Plummer pays the market price of $90 to retire the bonds, cash amount Plummer Company must pay to retire the bonds payable can be calculated as follows:
Cash paid to retire bonds = 25,000 * $90 = $225,000
3.Compute Plummer Company's gain or loss on the retirement of the bonds payable.
Gain (loss) = Carrying amount - Cash paid on retirement = $250,000 - $225,000 = $25,000
